Question 1 - General Mills (NYSE: GIS) is a large manufacturer and distributor of package consumer food products. Benoit Gagnon, a buy-side analyst covering General Mills, has studied the historical growth rates in sales, earnings, and dividends for GIS, and also has made projections of future growth rates. Gagnon expects the current dividend of 1.10 per share to grow at 6 percent for the next two years, and that the growth rate will decline to 3 percent and remain at that level thereafter.
The risk-free rate is 4%, the market risk premium is 6%, and GIS's beta, assumed to be 0.50.
Required: Compute the value of one share of GIS stock using Dividends Valuation Approach.
Question 2 - Shady Sunglasses operates retail sunglass kiosks in shopping malls. Below is information related to the company?
|
(dollar amounts in thousands)
|
2014
|
2015
|
2016
|
2017
|
2018
|
2019
|
|
Net Cash Flow from Operations
|
564
|
628
|
854
|
1059
|
1345
|
1655
|
|
Interest Expense after tax
|
122
|
134
|
148
|
145
|
155
|
148
|
|
Decrease (Increase) in Cash Required for Operations
|
-75
|
-54
|
-48
|
-32
|
-61
|
-48
|
|
Net Cash Flow from Investing
|
-287
|
-300
|
-310
|
-285
|
-294
|
-277
|
|
Net Cash from Debt Financing
|
210
|
204
|
140
|
85
|
-40
|
-46
|
| |
|
|
|
|
|
|
|
Present Value Factors (Re = 8.5%)
|
0.922
|
0.849
|
0.783
|
0.722
|
0.665
|
|
|
Common Shares Outstanding in thousands
|
1,512
|
|
|
|
|
|
Required:
1. Using the above information and assuming that steady-state growth of FCFE in year 2019 and beyond will be 4%, calculate Shady Sunglasses' current stock value per share using FCFE valuation model. Remember to adjust the present value for midyear discounting.
2. Using the above information and assuming that steady-state growth of FCFF in year 2019 and beyond will be 4%, and WACC = 8.5%, compute Shady Sunglasses' current firm value per share using FCFF valuation model. Remember to adjust the present value for midyear discounting.